On November Cheng Company a USbased company forecasts the purchase of goods from a foreign supplier for
yuan. Cheng expects to receive the goods on April and make immediate payment. On November
Cheng enters into a sixmonth forward contract to buy yuan. The company properly designates the forward contract
as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge
effectiveness and are amortized to net income using a straightline method on a monthly basis over the life of the contract.
The following US dollarYuan exchange rates apply:
As expected, Cheng receives goods from the foreign supplier on April and pays yuan immediately. Cheng
sells the imported goods in the local market in May
Required:
a Prepare all journal entries, including December adjusting entries, to record the foreign currency forward contract and
import purchase.
b What is the impact on net income in
c What is the impact on net income in
